1. NARUC Natural Gas Committee New York City July 17, 2007 David Sweet – Executive Director World Alliance for Decentralized Energy (WADE) Edinburgh, Washington, Edmonton, Beijing

2. 2 LNG supply - who knows what the future will bring?

3. 3 Doomsday Scenario “ The world will soon start to run out of conventionally produced oil. If we manage somehow to overcome that shock by shifting the burden to coal and natural gas, the two other primary fossil fuels, life may go on more or less as it has been – until we start to run out of all fossil fuels by the end of this century… Even if human life does go on, civilization as we know it will not survive, unless we can find a way to live without fossil fuels.” Out of Gas, by David Goodstein

4. 4 A Contrarian Voice  “The raw fuels are not running out. The faster we extract and burn them, the faster we find still more.”  “The cost of energy as we use it has less and less to do with the cost of fuel.”  “The more efficient our technology, the more energy we consume.”  “The competitive advantage in manufacturing is now swinging decisively back toward the United States.” The Bottomless Well, by Peter Huber and Mark Mills

5. 5 The Oracle on LNG “ If North American natural gas markets are to function with the flexibility exhibited by oil, unlimited access to the vast world reserves of gas is required.” Alan Greenspan, June 2003

6. 6 Source: BG, ALNG, CMS, University o f Houston (IELE) LNG Value Chain

7. 7 LNG Source: WADE based on BP Statistical Review of World Energy2007

8. 8

9. 9 LNG Source: WADE based on EIA World Energy Outlook 2007

10. 10 LNG Source: WADE based on 2004 Cedigaz data

11. 11 LNG

12. 12 LNG Source: WADE based on 2004 Cedigaz data

13. 13 LNG Source: WADE based on 2004 Cedigaz data

14. 14 LNG

15. 15 LNG Cost Escalation  Traditional rule of thumb: $6-9 Billion for a 1 Bcf/d project – this is no longer the case  Main drivers of LNG cost increases:  Increase in cost of raw materials  Shortage of skilled labor force  Contractors stretched thin – high demand across entire oil & gas industry  Consequence: LNG costs have gone up by a factor of 4 in the past 5 years  $250/ton to recent reports of $800-$1000/ton

16. 16 LNG Cost Escalation Source: Poten & Partners

17. 17 LNG Drivers – Energy Price Escalation Source: WADE based on EIA World Energy Outlook 2007

18. 18 LNG Drivers - NIMBY, BANANA and NOPE

19. 19 LNG Drivers - Climate Change

20. 20 LNG is a Long Term Play  LNG infrastructure will not be built on short- term contracts – long term is the anchor but spot is growing  LNG value chain is a capital intensive investment that requires a sharing of project risks over the asset life  LNG will continue to be a growing component of the supply portfolio

21. 21 NARUC/IOGCC Report on Long Term Contracts (10/85)  State regulators should take a more active role encouraging long-term gas supply, transportation, storage plans  State regulators should minimize second guessing and taking a short-term perspective when evaluating long- term contracts  State regulators should recognize the special features of certain infrastructure projects, specifically … LNG projects, will require substantial revenue guarantees

22. 22 Conclusions  The future can change quickly  Global LNG supply is expanding rapidly – for now  Costs will continue to escalate  Energy price increases and climate change will drive supply additions  Spot trade will grow but long term contracts will remain the foundation of LNG market  Long term investments need long term contracts

23. 23 Any questions? www. localpower.org dsweet@localpower.org Thank you!